3/21/2020 [ G.R. Nos.

L-28502-03, April 18, 1989 ]

254 Phil. 367

FIRST DIVISION
[ G.R. Nos. L-28502-03, April 18, 1989 ]
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. ESSO STANDARD EASTERN, INC. AND
THE COURT OF TAX APPEALS, RESPONDENTS.
DECISION

NARVASA, J.:

In two (2) cases appealed to it1 by the private respondent, hereafter simply referred to as ESSO, the Court of Tax Appeals rendered
judgment,2 sustaining the decisions of the Commissioner of Internal Revenue excepted to, save "the refund-claim ** in the amount of
P39,787.94 as overpaid interest" which it ordered refunded to ESSO.

Reversal of this decision is sought by the Commissioner by a petition for review on certiorari filed with this Court. He ascribes to the Tax
Court one sole error: "of applying the tax credit for overpayment of the 1959 income tax of ** ESSO, granted by the petitioner
(Commissioner), to ** (ESSO'S) basic 1960 deficiency income tax liability** and imposing the 1-1/2% monthly interest3 only on the
remaining balance thereof in the sum of P146,961.00"4 (instead of the full amount of the 1960 deficiency liability in the amount of
P367,994.00).1 Reversal of the same judgment of the Court of Tax Appeals is also sought by ESSO in its own appeal (docketed as G.R. Nos.
L-28508-09); but in the brief filed by it in this case, it indicates that it will not press its appeal in the event that "the instant petition for review
be denied and that judgment be rendered affirming the decision of the Court of Tax Appeals."

The facts are simple enough and are quite quickly recounted.

ESSO overpaid its 1959 income tax by P221,033.00. It was accordingly granted a tax credit in this amount by the Commissioner on August
5, 1964. However, ESSO's payment of its income tax for 1960 was found to be short by P367,994.00. So, on July 10, 1964, the
Commissioner wrote to ESSO demanding payment of the deficiency tax, together with interest thereon for the period from April 18, 1961 to
April 18, 1964. On August 10, 1964, ESSO paid under protest the amount alleged to be due, including the interest as reckoned by the
Commissioner. It protested the computation of interest, contending it was more than that properly due. It claimed that it should not have
been required to pay interest on the total amount of the deficiency tax, P367,994.00, but only on the amount of P146,961.00 -- representing
the difference between said deficiency, P367,994.00, and ESSO's earlier overpayment of P221,033.00 (for which it had been granted a tax
credit). ESSO thus asked for a refund.

The Internal Revenue Commissioner denied the claim for refund. ESSO appealed to the Court of Tax Appeals. As aforestated, that Court
ordered payment to ESSO of its "refund-claim ** in the amount of P39,787.94 as overpaid interest. Hence, this appeal by the Commissioner.

The CTA justified its award of the refund as follows:

" ** In the letter of August 5, 1964, ** (the Commissioner) admitted that ** (ESSO) had overpaid its 1959 income tax by
P221,033.00. Accordingly ** (the Commissioner) granted to ** (ESSO) a tax credit of P221,033.00. In short, the said sum of
P221,033.00 of (ESSO's) money was in the Government's hands at the latest on July 15, 1960 when it (ESSO) paid in full its
second installment of income tax for 1959. On July 10, 1964 ** (the Commissioner) claimed that for 1960, ** (ESSO)
underpaid its income tax by P367,994.00. However, instead of deducting from P367,994.00 the tax credit of P221,033.00 which
** (the Commissioner) had already admitted was due ** (ESSO), ** (the Commissioner) still insists in collecting the interest on
the full amount of P367,994.00 for the period April 18, 1961 to April 18, 1964 when the Government had already in its hands the
sum of P221,033.00 of ** (ESSO'S) money even before the latter's income tax for 1960 was due and payable. If the imposition
of interest does not amount to a penalty but merely a just compensation to the State for the delay in paying the tax, and for the
concomitant use by the taxpayer of funds that rightfully should be in the Government's hand (Castro v. Collector, G.R. No. L-
1274, Dec. 28, 1962), the collection of the interest on the full amount of P367,994.00 without deducting first the tax credit of
P221,033.00, which has long been in the hands of the Government, becomes erroneous, illegal and arbitrary.

" ** (ESSO) could hardly be charged of delinquency in paying P221,033.00 out of the deficiency income tax of P367,994.00, for
which the State should be compensated by the payment of interest, because the said amount of P221,033.00 was already in the
coffers of the Government. Neither could ** (ESSO) be charged for the concomitant use of funds that rightfully belong to the
Government because as early as July 15, 1960, it was the Government that was using ** (ESSO's) funds of P221,033.00. In the
circumstances, we find it unfair and unjust for ** (the Commissioner) to exact the interest on the said sum of P221,033.00 which,
after all, was paid to and received by the Government even before the incidence of the deficiency income tax of P367,994.00.
(ltogon-Suyoc Mines, Inc. v. Commissioner, C.T.A. Case No. 1327, Sept. 30, 1965). On the contrary, the Government should be
the first to blaze the trail and set the example of fairness and honest dealing in the administration of tax laws.

"Accordingly, we hold that the tax credit of P221,033.00 for 1959 should first be deducted from the basic deficiency tax of
P367,994.00 for 1960 and the resulting difference of P146,961.00 would be subject to the 18% interest prescribed by Section
51(d) of the Revenue Code. According to the prayer of ** (ESSO) **, (the Commissioner) is hereby ordered to refund to **

elibrary.judiciary.gov.ph/elibsearch 1/3
3/21/2020 [ G.R. Nos. L-28502-03, April 18, 1989 ]
(ESSO) the amount of P39,787.94 as overpaid interest in the settlement of its 1960 income tax liability. However, as the
collection of the tax was not attended with arbitrariness because ** (ESSO) itself followed ** (the Commissioner's) manner of
computing the tax in paying the sum of P213,189.93 on August 10, 1964, the prayer of ** (ESSO) that it be granted the legal rate
of interest on its overpayment of P39,787.94 from August 10, 1964 to the time it is actually refunded is denied. (See Collector of
Internal Revenue v. Binalbagan Estate, Inc., G.R. No. L-12752, Jan. 30, 1965)."

The Commissioner's position is that income taxes are determined and paid on an annual basis, and that such determination and payment of
annual taxes are separate and independent transactions; and that a tax credit could not be so considered until it has been finally approved and
the taxpayer duly notified thereof. Since in this case, he argues, the tax credit of P221,033.00 was approved only on August 5, 1964, it could
not be availed of in reduction of ESSO's earlier tax deficiency for the year 1960; as of that year, 1960, there was as yet no tax credit to speak
of, which would reduce the deficiency tax liability for 1960. In support of his position, the Commissioner invokes the provisions of Section
51 of the Tax Code pertinently reading as follows:

"(c) Definition of deficiency As used in this Chapter in respect of tax imposed by this Title, the term 'deficiency' means:

(1) The amount by which the tax imposed by this Title exceeds the amount shown as the tax by the taxpayer upon his return; but
the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment)
as a deficiency, and decreased by the amount previously abated, credited, returned, or otherwise in respect of such tax; * *

***

(d) Interest on deficiency - Interest upon the amount determined as deficiency shall be assessed at the same time as the deficiency
and shall be paid upon notice and demand from the Commissioner of Internal Revenue; and shall be collected as a part of the tax,
at the rate of six per centum per annum from the date prescribed for the payment of the tax (or, if the tax is paid in installments,
from the date prescribed for the payment of the first installment) to the date the deficiency is assessed; Provided, That the amount
that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years, the
prevent provision regarding prescription to the contrary notwithstanding."

The fact is that, as respondent Court of Tax Appeals has stressed, as early as July 15, 1960, the Government already had in its hands the sum
of P221,033.00 representing excess payment. Having been paid and received by mistake, as petitioner Commissioner subsequently
acknowledged, that sum unquestionably belonged to ESSO, and the Government had the obligation to return it to ESSO. That
acknowledgment of the erroneous payment came some four (4) years afterwards in nowise negates or detracts from its actuality. The
obligation to return money mistakenly paid arises from the moment that payment is made, and not from the time that the payee admits the
obligation to reimburse. The obligation of the payee to reimburse an amount paid to him results from the mistake, not from the payee's
confession of the mistake or recognition of the obligation to reimburse. In other words, since the amount of P221,033.00 belonging to ESSO
was already in the hands of the Government as of July, 1960, although the latter had no right whatever to the amount and indeed was bound
to return it to ESSO, it was neither legally nor logically possible for ESSO thereafter to be considered a debtor of the Government in that
amount of P221,033.00; and whatever other obligation ESSO might subsequently incur in favor of the Government would have to be
reduced by that sum, in respect of which no interest could be charged. To interpret the words of the statute in such a manner as to subvert
these truisms simply can not and should not be countenanced. "Nothing is better settled than that courts are not to give words a meaning
which would lead to absurd or unreasonable consequences. That is a principle that goes back to In re Allen (2 Phil. 630) decided on October
29, 1903, where it was held that a literal interpretation is to be rejected if it would be unjust or lead to absurd results."1 "Statutes should
receive a sensible construction, such as will give effect to the legislative intention and so as to avoid an unjust or absurd conclusion."2

WHEREFORE, the petition for review is DENIED, and the Decision of the Court of Tax Appeals dated October 28, 1967 subject of the
petition is AFFIRMED, without pronouncement as to costs.

Cruz, Gancayco, Griño-Aquino, and Medialdea, JJ., concur.

1 The appeals were docketed as C.T.A. Cases Numbered 1251 and 1558

2 Under date of October 28, 1967

3 18% p.a., according to Sec. 51(d) of the Internal Revenue Code

4 Par. 9, petition

1 Pp. 23-24, petitioner's brief: Rollo, p. 74 et seq

1 Automotive Paints & Equipment Co., Inc. v. Lingad, 30 SCRA 255 [1969]

2 Peo. v. Rivera, 59 Phil. 242 [1933]

elibrary.judiciary.gov.ph/elibsearch 2/3
3/21/2020 [ G.R. Nos. L-28502-03, April 18, 1989 ]
Source: Supreme Court E-Library | Date created: November 03, 2014
This page was dynamically generated by the E-Library Content Management System

Supreme Court E-Library

elibrary.judiciary.gov.ph/elibsearch 3/3